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Happy ending still elusive in Italian broadband drama - sources

* TIM in talks with Open Fiber’s shareholders since June

* Efforts to create national fast broadband champion stalling

* TIM invited bids from funds to join the project

MILAN, Jan 17 (Reuters) - Telecom Italia’s efforts to recruit investors to help it to create a national broadband champion with Open Fiber have stalled, sources close to the matter say, as it is proving hard to hammer out a deal structure.

The former Italian telecoms monopoly has been talking since last June with utility Enel and state lender Cassa Depositi e Prestiti (CDP) on ways of combining their fibre broadband operations.

But with Enel reluctant to part with its business and regulatory and funding issues clouding the horizon, talks have so far been fruitless.

In a bid to get the ball rolling, Telecom Italia (TIM) asked infrastructure funds in December to evaluate an investment in the potential future combined fibre-optic entity.

Big funds, including Ardian, Macquarie, Wren House Infrastructure, Allianz, Goldman Sachs, KKR and Brookfield tabled their non-binding bids before Christmas, a source with knowledge of the matter said.

But a lack of an agreement on how any deal will be structured has led to a situation which one source described as a “deadlock.”

The funds declined to comment or were not available to comment.

“It’s all stuck,” said another source close to one of the funds which made an offer but has since heard nothing more.

Sources have said that, under TIM’s proposal, funds would help the former monopoly buy Enel’s stake in Open Fiber while TIM, which also has a strong retail client business, would fold its own last-mile fibre assets in the mix.

To go ahead with the multi-billion euro deal, TIM, which currently owns more than 90% of Italy’s fixed wholesale business, wants assurances it can keep control of the new entity, two of the sources said.

That clashes with regulations favouring the adoption of a wholesale-only business model outside TIM’s control.

What’s more, sources said TIM, CDP and Enel have still not reached an accord on the governance of the new entity.

CDP, which owns 50% of wholesale-only Open Fiber, is TIM’s second-biggest shareholder and is keen to create a single fast broadband network to avoid duplicating investments and providing businesses better access in all parts of the country.

But with the ruling coalition caught up in a series of hot corporate issues - including crises at motorway group Atlantia , flagship carrier Alitalia and steelmaker Ilva - the single network deal is not at the top of the government agenda.

“What’s missing is the political orchestration,” a source close to negotiations said.

TIM, facing tough competition in its core domestic market, could still draw up a shortlist of funds to help it bankroll the venture and one source said its initiative with the funds was still ongoing.

Persisting with fruitless negotiations could be negative for TIM, as Open Fiber continues to grow its overlap on TIM’s network, UBS analyst Giovanni Montalti said in a research note.

TIM could address the issue by launching its own last-mile fibre roll-out plan, which could be funded through asset sales or joint-venture agreements with infrastructure funds, the analyst said.

Uncertainty over the future of a potential deal with Open Fiber is weighing on Telecom Italia shares, down 8% since the start of this year, against a 1% rise in Europe’s telecom index . (Reporting by Elvira Pollina, Stephen Jewkes and Elisa Anzolin; Editing by Susan Fenton)